I.A.R Systems

Broad-based Q4 beat. Organic sales growth was 5% YOY (11% net sales beat versus our forecast), with Asia leading the way (+18% organic growth YOY), benefiting from increased geopolitical tensions as China now comprises ~10% of IAR’s sales, two milestone deals in security (from a low base), and eight pre-commercial SaaS wins to test the offering. A 97% gross margin and tight opex control translated into 64% adj. EBIT drop-through, which led to adj. EBIT 54% above our forecast (27.3% margin, up 1.8%-points YOY). 50% cash conversion (18.9% FCF margin) led to net cash of SEK111m at end-Q4, and IAR has completed share buybacks worth SEK104m since Q3 2023 (owns 7.7% of its outstanding shares and should cancel these, in our view).

We have raised our 2025e adj. EPS by 2%, as we do not extrapolate the Q4 strength at this stage. This would suggest -3% organic sales growth YOY and -43% adj. EPS growth in 2025e to factor in the SaaS transition, on: 1) a 2% sales CAGR in 2024–2028e; 2) SaaS revenues representing ~60% of 2028e net sales; and 3) an earnings trough for 2026e. Our estimates could prove too conservative, but we prefer to take a prudent stance.

SEK160–265 fair value reiterated, with the low end based on a 2025e EV/EBIT of 20x (SaaS shift-pressured earnings) and the high end on a DCF that captures IAR’s targeted ‘rule of 40’ financials beyond 2028–2030e (20%+ sales growth at a 20%+ EBIT margin). On a perpetual-licence basis, the shares would be trading at a 2025e EV/EBIT of ~11x.

Best regards,

Joachim Gunell | DNB Markets | Equity Research
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59, Stockholm
Postal address: 105 88 Stockholm
E-mail: joachim.gunell@dnb.se | www.dnb.no